Journal Article10.1111/J.1540-6261.1997.TB02723.X
Do Changes in Dividends Signal the Future or the Past
TL;DR: In this article, the authors investigate the idea that changes in dividends have information content about the future earnings of the firm and find only limited support for it and conclude that the size of the dividend increase does not predict future earnings.
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Abstract: Many dividend theories imply that changes in dividends have information content about the future earnings of the firm. We investigate this implication and find only limited support for it. Firms that increase dividends in year 0 have experienced significant earnings increases in years -1 and 0, but show no subsequent unexpected earnings growth. Also, the size of the dividend increase does not predict future earnings. Firms that cut dividends in year 0 have experienced a reduction in earnings in year 0 and in year -1, but these firms go on to show significant increases in earnings in year 1. However, consistent with Lintner's model on dividend policy, firms that increase dividends are less likely than nonchanging firms to experience a drop in future earnings. Thus, their increase in concurrent earnings can be said to be somewhat "permanent." In spite of the lack of future earnings growth, firms that increase dividends have significant (though modest) positive excess returns for the following three years. THE IDEA THAT CHANGES in dividends have information content is an old one. Lintner's (1956) famous investigation of dividend policy stresses that firms only increase dividends when management believes that earnings have permanently increased, meaning that a dividend increase implies a rightward shift in (management's perceived) distribution of earnings. A bit later, Miller and Modigliani (1961) explicitly suggest that dividends can convey information about future cash flows when markets are incomplete. Indeed, as demonstrated by Miller and Rock (1985), through the sources and uses of funds identity, the dividend decision could reveal information about current earnings
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Dividend Policy, Growth, and the Valuation of Shares
TL;DR: In this paper, the effect of differences in dividend policy on the current price of shares in an ideal economy characterized by perfect capital markets, rational behavior, and perfect certainty is examined.
Distribution of incomes of corporations among dividends, retained earnings and taxes
J Lintner
- 01 Jan 1956
TL;DR: Lintner as discussed by the authors discusses the distribution of income of corporations among dividends, retained earnings, and taxes in the context of the Sixtyeighth Annual Meeting of the American Economic Association.
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Dividend Policy under Asymmetric Information
Merton H. Miller,Kevin Rock +1 more
TL;DR: In this article, the authors extend the standard finance model of the firm's dividend/investment/financing decisions by allowing the managers to know more than outside investors about the true state of the current earnings.
Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy
TL;DR: In this article, the authors assume that outside investors have imperfect information about firms' profitability and that cash dividends are taxed at a higher rate than capital gains, and they derive a comparative static result that relates the equilibrium level of dividend payout to the length of investors' planning horizons.
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Market underreaction to open market share repurchases
TL;DR: In this article, the authors examine long run firm performance following open market share repurchase announcements, 1980-1990, and find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1%.
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